tv CNN Student News HLN October 31, 2009 4:00am-4:10am EDT
but i also would like to ask doug if he agrees with the following statement. without combined reporting the state corporate income tax cannot work. it is almost impossible to effectively tax corporate income at the state level without combined reporting. just two very simple questions. >> thanks, david. you know, so california has a relatively high marginal tax rate. it was increased by voter initiative a few years ago. but california has a lot of other problems, too. majority of requirements to raise taxes or majority requirement the balance the
budget. proposition 13, which works out all kinds of trouble. polarized state legislature. it's hard to imagine how the marginal tax rate in california could be anything more than -- at most -- an accidental contributor given the layers of issues that california faces. then you have states with no income taxes at all or flat income taxes from florida, arizona, washington, nevada facing major fiscal problems of their own. so there's certainly a range of different tax structures around the different states. they're all in trouble. the question that a lot of legislators face is if i raise taxes on rich people, aren't they all going to flee? and the problem is the data
doesn't support that idea. it's very hard to prove. i can't sit here and say there's not a single person in the state of maryland that has departed because of their income tax dr their marginal income tax rate went up bay single percentage point. if you think about it and look at the migration data, if there are any doing that it's very few. and they are not costing the state nearly as much as the state is realizing in the form of additional revenue. i don't think anyone thinks -- ever really looked at the data that millionaire taxes are then negatives. they clearly raise a lot of revenue. i think the other question is the volatility issue.
which is a big concern. and in the state economy. you have states like florida and nevada which clearly were riding high on the housing boom. and a number of other things in the good times. now have crashed. states need to look at well, are we in time period where this is not sustainable revenue growth in controlling spending and tax cuts. a lot of the boom time revenues were spent on was tax cuts that later turned out to be unaffordable. whn it comes to a high-end income tax it's a way for states to respond to the growing problem of extreme income inequality in their state. doesn't seem to create any long term nick problems.
that sate, it's only one solution states are going to have to look at over time. >> can i say a few words? >> sure. >> first i'll just note that i'm one of the people that moved from maryland to virginia for tax reasons a few years ago. >> do you make over $250,000 a year? >> i wish. it was partly the tax rates. higher taxes in maryland. well, the sales tax increase. by anyways you are right. those examples are few and far between. people who, i'm leaving as soon as the tax goes up. those very few. we looked at the new jersey millionaires tax. a lot of the new ones were just enacted this year like maryland and oregon.
the new jersey one, it does bear out interestingly, i know dave is trying to pick a fight between us, but it kind of bares both of what we're saying out. when new jersey raised the millionaires tax it did increase state revenues in the short term. over the study period. but the income earned by those people dropped. so that's suggesting that you are going to have fewer -- that subset of people earning less money but the state will get more tax revenue out of it. so it's a short-term revenue gain that hurts your long term. beyond that i'll point you to the research we've put out. how taxes impact behavior and incentives to earn and work and produce jobs. >> doug, you want to take on the corporate questions? >> sure, i would be happy to.
we spent a half day debating the merits of the reporting. i thought i convinced him back then. let me give it a try. first point on combined reporting, can tax exist without combined reporting? i think that those of nus the tax profession tend to live in a bit of a bubble. i worked for ge for a year. tax decisions do not drive business decisions at ge. that is the job of the tax professionals to min niz them. if it does, it's a foolish way to run a business in my mind. secondly, combined reporting creating its own distortions.
let me give you just an example of this. what combined reporting does is assumes that every company that is combine d has the same profi level. let's say an oil company that has gas stations, wholesale facilities, refinery operations. each one company operates in each level. and each of those different levels has a different competitive climate. so the margins may be smaller in some. it depends on demographics, if the oil company hits solid leases. the price of oil is very high, then they'll make a killing on their extraction. if they're in a market where there's a lot of gas stations, the gas station level is going to be very thin.
so let's say we got gas stations in massachusetts. all the sudden you bring in that big gain from their extraction, which has nothing to do with massachusetts, then they feel rightly so that what massachusetts is taxing is distortive when you look at the way they operate their business. their response is let's just close the gas stations in. that's one of the proshs. and the second thing is that there are winners and losers in combined reporting. we realize that's the case. there will be always be winners and losers. it's just a different way to measure your liability. the difficulty is that because
the definitions are so vague and you look at function fall integration, economies of scale and centralized management, which are very difficult to -- in some cases not even in the statute, not even in the california statute. it's all case driven. there's an opportunity to pick and choose what companies you want. the state has to come in and audit. those companies that tend to be losers will try to raise their affairs so they don't have to file combined reporting. the winners will immediately go to combined reporting. it's not nearly what commentators think particularly when they passed a statute that addresses the issue that seems to be prodding everybody. the delaware holding company.